Monday, August 07, 2006

What do you do when you own a company and find out the second shift that 100 out of 150-175 just won the Powerball?

Lexington Herald leader--

Philadelphia, Wisconsin -- about 100 workers who won the Powerball jackpot worth $208.6 million must now make a decision whether or not to retire.
The group estimates that each person will receive between $500,000 and $700,000, after taxes if they choose to take a lump sum.
" to see the joy on their faces, it's just incredible," Sargento chief executive officer Lou Gentine said , "we're really happy for them. "

I think if I won $500,000, I'd quit my job and I'm not even working. Okay, to be honest, it would depend on my job how well I like it, however at the very least I would have a very nice vacation.
What would you do?

5 comments:

Anonymous said...

I wonder if any of them are illegals. More money to Mexico.

jeff said...

Whenever it gets that high up, about 2/3rds of the company I work for goes in on it.

If we all quit it would be a major problem - we're a local utility.

Fortunately, I think we all like it here enough to stick around until we either decided not to retire or to make arrangements for replacements. After all - we'd only be hurting ourselves and our neighbors.

Anonymous said...

problem is, most people would quit, and then in a few years would be broke and would have a hard time getting work without recent experience.

say you have $500,000 after taxes.

if you invest this conservatively, for income and a nest egg, you will be able to draw about $20,000 a year in interest or dividends, while capitalizing any additional income to offset future inflation.

that's nice money as a supplement.

but that's not enough for an average person with a family to afford a house, two decent cars, braces and college for the kids, etc., without earning more income.

but most people don't think long term. they live in the now.

so they end up taking maybe $100,000 of that $500,000 and spend it.

after all, you never get the opportunity another time to do things like vacation, buy jewelry, eat caviar and drink Dom Perginon.

that money goes fast when you think you are supposed to enjoy it.

and then people think about nice houses and nice cars. so they take another $100,000 and put it down on a new house and put a new SUV in the garage. people don't think about the long term, so they finance the rest with a variable mortgage. interest only for 5 years, then increased payments. that sort of thing. so sure, at first, they can afford the payments from their interest and dividends (which are now more like $15,000, with no capitalization because there is no extra). but then the bills start to get bigger.

Meanwhile, these people have quit their jobs, because everyone knows that once you win the lottery, you never have to work again.

So 5 years go by, and they can't afford to maintain the life of luxury they have been living. And now they are unemployable, because they have been out of the job market for too long. Then they have to dig into what's left of their capital to pay bills. Pretty soon, the capital is gone, the house is for sale (if not forclosed) and the lottery winners are filing for bankruptcy and looking for any low-wage job they can get, to start life over from scratch.

This happens to the majority of lottery winners, unfortunately. It's the same thing that often happens to people who strike it rich quickly in business, who make it big in sports or show biz, etc.

Think about people like Mike Tyson: he made over $100 million in fights and is broke and unemployable.

Think about child stars who end up in prison and addicted to drugs when they no longer get acting jobs as adults.

Out of the 100 workers who won the powerball, how many will be broke in 5 years? 50? 75?

Sure, some will be smart, invest wisely, keep working (at least long enough to set up a realistic plan to retire, or change to a lower paying but more enjoyable job), and do well.

But they are a minority.

If I were the company owner, I would ask all these winners to attend a series of meeting, paid for by me, with financial planners and counselors, to help them make smart decisions. I'd also encourage them all to keep working, at least for a little while, in order to get used to having money in the bank and in order to take time to plan for a smart future.

I'd hope that most of them would listen and stay on the job.

It would be worth it to shell out the cash to hire financial planners for the employees, because it might keep some of them working. Replacing workers costs more money than providing benefits to help keep workers.

It would also be worth it to know I was doing something good for them.

Anonymous said...

History shows that only two things on earth never decrease in value - art and land. I'd buy a plot of land, a nice piece of fine art and insure both. Instead of quitting a job, I think I'd keep working while setting myself up in my own business.
Not sure if it said in the news, but if any of these people are over 50, they probably aren't worried about growing kids, 2 cars in the garage and fancy drinking water. They would be worried about retirement and would more than likely invest the money. Vacation is always good.

Anonymous said...

if you bought land right now, you'd lose money. we are in a HUGE real estate bubble. investing in land today is like investing in dot coms in 1999.

if you own a house, sell it now, invest your capital gains in bonds, and rent. you'll be able to buy your house back at 1/2 its value in 5 years.

that's short term, of course. long term, if you can hold the land for 30 years, it will go up in value. but you could lose your shirt if you are planning on retiring in a few years. you would also probably make a lot more money if you diversified for the long term, rather than putting all your eggs into a house and a Picasso.

art is especially risky. most folks think that because they keep seeing new record auction prices for masterworks from Picasso and Van Gough that art in general goes up in value. most art has a temporary rise in value when an artist becomes more well-known (usually when his obit makes the papers), and then drops slowly over time as investors chase other fads. the odds or your random art piece (that you can afford today) every ending up the next "Sunflowers" is slim to none.

If an art piece is going to continue to be a good investment over the long term, it is already out of your price range, even with a lottery win. these fantastic auction pieces, the things going for hundreds of millions, were going for tens of millions a generation ago. when you look at work that you can buy for more like a hundred thousand, you are looking at a market that is saturated with "today's hype" art-crowd scene (think emaciated rich people in black turtlenecks smoking cigarettes on long stems while proclaiming that a splotch on a canvass represents a new schadenfrude enveloping the zeitgeist). These people glom on to artists because of their personalities or because of their outrageousness, not because of the appeal of their art. they are their own marketing circle, and they artificially create demand for a lousy product, which then devalues as soon as they move on to some other new bohemian.

therefore, an awful lot of the art in this arena sells high, then becomes a worthless decoration in someone's home, and has little to no value at auction a decade later.